Paper mills reap millions from state energy law

A Western Maryland paper mill and several others in the region have collected millions of dollars over the past eight years by taking advantage of an obscure provision in a state law that is supposed to encourage the development of wind, solar and other renewable energy projects.

The paper manufacturers routinely burn waste byproducts from their mills to make the energy to run them. But since 2005, they've been getting paid to do so by selling "renewable energy credits" to power companies, which can buy the paper waste credits rather than purchase ones generated by the sun or wind.

Some lawmakers in Annapolis hope to close what they contend is a major loophole in Maryland's efforts to promote the growth of renewable energy production in the state. A bill is being pushed to phase out the lucrative credits given to paper mills for what is known as "black liquor" and other wood waste they generate.

"I don't think that was the intention when we established this," said Del. John A. Olszewski Jr., a Baltimore County Democrat, who plans to introduce the measure in the House. "Most folks would say there's a pretty big difference between wind, solar, geothermal and burning wood byproducts."

Many lawmakers thought they were helping to launch wind and solar projects when they voted in 2004 to require Maryland power companies to gradually increase their use of renewable energy. But the owner of the mill in Luke in Allegany County successfully lobbied to include waste from paper production among other energy sources eligible for premium "Tier 1" renewable energy credits.

Mike Tidwell, director of the Chesapeake Climate Action Network, says he and other environmentalists opposed the provision for the paper industry, fearing that it would undercut development of renewable energy such as wind and solar. But they accepted it as a compromise needed to secure passage of the legislation.

The "renewable portfolio standard" law requires electricity suppliers serving Maryland to get 20 percent of their power from renewable sources by 2022. Other sources also classified as renewable — and eligible to sell credits — include hydroelectric power, landfill gas and municipal trash.

"Black liquor," a dark liquid byproduct of the pulping process, has been used for decades by paper companies, along with other wood waste, to power mills. With its inclusion in the renewable energy program, mills became eligible to earn revenue from the practice.

"It wasn't until the late 2000s that it became clear this was a very big loophole," Tidwell said. And while 29 states have similar renewable energy mandates, he said few have allowed paper mill waste to claim such a large share of the credits.

Over the years, the paper industry's share of Maryland's renewable energy portfolio has grown to dwarf all other sources. In 2011, black liquor accounted for one-third of the most lucrative renewable energy credits used to fulfill Maryland law, and with wood waste added, the industry share grew to 45 percent. Wind, by comparison, provided 14 percent and solar power just 1 percent.

Maryland electricity ratepayers pay a little extra for their power to underwrite the credits granted to renewable energy sources. With "Tier 1" credits selling for $2.75 each on average in 2011, the state's ratepayers paid out $3.8 million for paper mills burning "black liquor" and other wood waste, Tidwell's group estimates.

About $350,000 went that year to New Page Corp. for its mill in Luke, the only in-state facility to benefit from the provision, according to the group.

"Maryland ratepayers are paying a premium for renewable energy," said Tidwell, and much of it is "going to paper mills out of state that have been in business for decades."

The environmental group is pressing to downgrade and ultimately to phase out the lucrative credits for paper mill waste.

A spokeswoman at New Page's Luke mill declined to answer questions, but an industry spokeswoman said doing away with the credits was a concern.

"Overall, it is not a big source of revenue for the industry," Jessica McFaul, press secretary for the American Forest and Paper Association, said in an email. "However, for individual mills, it can be, and to remove a significant revenue stream could be harmful to those jobs."

The plant, built in 1888, employs 860 and produces about 510,000 tons of paper annually, according to the New Page web site. A leading maker of specialty papers, the company, based in Miamisburg, Ohio, recently emerged from bankruptcy.

While Olszewski is anxious to reform the renewable energy law, he said he is reluctant to do anything that might hurt the Luke mill.

"I'm very sensitive to the idea of job losses," he said, noting that his district in eastern Baltimore County has experienced the trauma of the bankruptcy and dismantling of the century-old steel mill at Sparrows Point.

Tidwell said he was sensitive as well, and noted that the Maryland mill accounted for a small fraction of the paper waste credits, which mainly go to out-of-state facilities.

After consulting with lawyers and a lobbyist for the mill, the environmental activists said an amendment is being drafted to allow any facilities that qualified to sell top-tier credits in the program's first year to continue until 2018, when they would be downgraded to less lucrative Tier 2 credits. Only the Luke mill and one other in Covington, Va., fit that provision. The other paper mills would still be eligible to sell less lucrative credits for their black liquor and wood waste, but those would be phased out in 2019.

With an extension for the Luke mill, the company has agreed to remain neutral on the bill, according to Tidwell.

The O'Malley administration, which is focused for now on seeking legislative subsidies for offshore wind development, also is remaining neutral, according to Abigail Ross Hopper, the governor's energy adviser. While unwilling to criticize the number of renewable energy credits claimed by the Luke mill and other paper facilities, she said, "the evolution of it perhaps caught some folks by surprise." She said it appeared that "the parties have figured a path forward."